Poland Monetary Policy

Poland: NBP keeps reference rate at record low of 1.50%

July 8, 2015

The National Bank of Poland (NBP) decided to keep its reference rate at the record low of 1.50% at its 7–8 July monetary policy meeting. The decision matched market expectations and marked the third consecutive time the NBP has left the rate unchanged at this rate.

In its accompanying statement, the NBP reaffirmed that the global economy is growing moderately. According to the Bank, conditions in the Euro area are improving, but activity remains low. The U.S. economy should pick up despite a disappointing first quarter of growth in 2015. However, China’s prospect remain weak and the projections are unfavorable for Poland’s Eastern European partners such as Russia and Ukraine. In addition, growing fears of a Greek insolvency recently led to a deterioration of some Central and Eastern European currencies, including the Polish zloty.

On the domestic front, the NBP expects GDP growth in Q2 to be around the same level as Q1’s 3.6% , driven by strong domestic demand fueled by an improving labor market, favorable financial conditions and increasing lending.

Regarding inflation, the Bank stated that there is no inflationary pressure in the economy due to weak demand and a continuing negative output gap. In addition, low commodity prices and moderate nominal wage growth are contributing to the lack of cost pressure. These factors caused annual growth in consumer prices to remain negative, although a recent acceleration in the rise prices for fuel and food has pushed prices upward slightly.

Finally, the Bank commented that, “the annual price growth will remain negative in the coming months, mainly due to the earlier sharp fall in commodity prices. At the same time, the expected stable economic growth, amidst recovery in the euro area and good situation in the domestic labour market, reduce the risk of inflation remaining below the target in the medium term.”

FocusEconomics Consensus Forecast panelists expect the policy rate to end 2015 at 1.82%. For 2016, the panel sees the rate ending the year at 1.97%.